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Regulating
the Appraisal Industry - How it Works
In the early
1980s, the savings and loan crisis emphasized the need to improve and
regulate appraisal practices throughout the United
States. The massive losses incurred by many lending institutions
exemplified the necessity that appraisals not only be based upon
established, accredited standards but also that all appraisals are free
from pressures from outside sources.
In 1989, Congress enacted the Financial Institutions Reform,
Recovery, and Enforcement act, better known as FIRREA. Title XI
of FIRREA, the “Real Estate Appraisal Reform Amendments,” required
federally regulated financial institutions, such as federally insured
banks, thrifts, and credit unions, to use State certified or licensed
appraisers to perform appraisals in conjunction with all federally
related transactions.
Title XI empowered The Appraisal Foundation, a private
not-for-profit organization, to establish uniform minimum appraiser
qualifications standards and uniform standards of professional
appraisal practice which are adhered to by all States and U.S.
Territories. The Foundation
serves as the parent organization for the Appraisal Standards Board and
the Appraiser Qualifications Board.
The Appraiser Qualifications Board establishes the minimum
education, experience, and examination criteria for real estate
appraisers to qualify for state licensing, certification and
recertification. The AQB raised their qualifying factors in
the mid-1990s and, in order to continually improve the quality of
appraisers, in 2008 much higher education requirements will go into
effect.
The Appraisal Standards Board determines the rules for developing
an appraisal and reporting its results. This board interprets and
amends the Uniform Standards of Professional Appraisal Practice
(USPAP), which is recognized throughout the United States as the
accepted standards of professional appraisal practice.
FIRREA mandates that all real estate appraisals used in
connection with federally related transactions are performed in
accordance with USPAP and, since 1992, the Office of Management and
Budget (OMB) requires all federal land acquisition and direct lending
agencies to use appraisals that conform with USPAP.
Title XI also created the Appraisal Subcommittee to oversee the
activities of both the States and the Appraisal Foundation. The
Appraisal
Subcommittee’s mission is “to ensure that real estate appraisers, who
perform appraisals in real estate transactions that could expose the
United States government to financial loss, are sufficiently trained
and tested to assure competency and independent judgment according to
uniform high professional standards and ethics.”
Each state and territory has a real property appraiser regulatory
program. Colorado appraisers are governed by the Colorado Board of Real
Estate Appraisers. In addition to issuing licenses, the board is
also responsible for investigation of complaints and taking corrective
or disciplinary action when violation of the law, rules, or standards
are identified.
Board members are appointed by the Governor and confirmed by the
State Senate. Members serve staggered three year terms. The
composition of the board, as directed by law in July of 1997, is three
practicing appraisers, an elected county assessor, a banker with real
estate lending experience, and two public members who may not be
appraisers, bankers, or assessors.
At this time, the board consists of Chairperson, Louis J. Garone,
appraiser, of Westminster, public member Arthur Gallegos of
Colorado Springs, appraiser, Mark S. Weston of Englewood, banking
member Joseph O’Doriisio of Arvada, assessor Keren Prior of Pagosa
Springs, appraiser John
VanderMiller of Denver, and public member Lawrence Depenbusch of
Centennial.
In addition to the above professionals, the Board is aided by the
expert staff of Director, Division of Real Estate, Debbie Campagnola,
Board Program Administrator, Stewart A. Leach, Program Assistant,
Cecilia Romero, Criminal Investigator, Robert Skinner, Compliance
Investigator, Future Davis, and Compliance Investigator Chris Stanley.
Generally, real property appraisers can obtain one of three types
of credentials issued by a state. Each credential allows an appraiser
to perform assignments within the following parameters:
A State Licensed Appraiser
is authorized to appraise non-complex
1-4 residential properties up to $1 million and commercial properties
up to $250,000 and is
required to complete 2,000 hours of job experience, 90 hours of
required education, and pass an exam.
A Certified Residential Appraiser
may appraise 1-4 family
residential units without regard to transaction value or complexity and
must satisfy 2,500 hours of required experience, 120 hours of necessary
education, and pass an exam.
A Certified General Appraiser
has satisfied at least 3,000 hours
of required experience, 180 hours of requisite education, and
passed an exam. A Certified General Appraiser has the
authorization to appraise all types of real property.
Further, the
Colorado legislature added a trainee
level license
to the three federally recognized levels. A registered appraiser
must complete 75 hours of basic appraisal education and pass a basic
examination. The trainee’s work must be prepared under the
supervision of a higher level licensee who must co-sign the report.
In addition to the
minimum state requirements, some appraisers also have appraisal
“designations” that certify that an appraiser has completed a specific
course of study through a professional organization that represents
appraisers. These organizations offer designations in specific
fields or specialties. At
the present time, it is not necessary to have a college degree
in order to become an appraiser, but some professional appraisal
organizations require a college degree for their advanced designations.
By continuing to insure that high standards are required and
enforced, the appraisal industry has the potential to be one of the
most strongly established branches of the real estate sector. Nevertheless, it is up to lenders and
brokers to verify that the
appraisers they work with are fully qualified and adhere to the ethical
standards set forth by both national and state mandates. And, it is up
to the appraisers themselves to police their own industry and ensure
that only honest and competent appraisers represent their profession.
For more information on the appraisal industry, visit the
subcommittee site located at www.asc.gov,
appraisalfoundation.org,
or
the Colorado Board of Appraisers at www.dora.
state.co.us/real-estate/index.htm.
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